Perspectives on where our world is heading from a vantage point in Denver, Colorado.

13 September 2010

The New Economics of Watching TV and Movies

In the halcyon days before I was born, the economics of watching movies was straightforward. You could watch one of a couple of movies available in town, in a large, full theater at full price, or you might be able to see it several years later, in abridged form on television, several year later, with lots of advertisements. When I was growing up, the next town was too far away to watch movies there, I didn't know about college film festivals, and there were no second run theaters.

The only choice you had back then was whether to see a discounted matinee (available only on the weekends), or to see it full price at night.

The Many Means Of Video Entertainment Distribution

Movies remain a vibrant form of popular entertainment, but the choices are much more involved.

If you want to see a movie in a theater, there are often IMAX and/or 3D versions, there are theaters that offer alcoholic drinks and/or dinner, and there are second run theaters that are cheaper. Between the first and second run theaters, movies stay in the theaters longer. And, places like CostCo sell discounted tickets. Also, you can now reserve and buy tickets in advance.

There are far more choices. Most people have multiple multiplexes nearby, there are art theaters, and there always seems to be film festivals going on. At any one time in the Denver metropolitan area there are probably twenty or more movies showing.

And, then, there are the increasing array of choices for watching movies at home. This is an increasingly attractive option as bigger screens, HDTV and Blu-Ray, and increasingly common home theater sound systems, improve the quality of the experience.

You can get premium channels on cable or satellite TV, some of which include on demand options. You can go to a video store and rent one (increasingly, near bankrupt Blockbuster is the only option), or get one at any of a couple of brands of kiosks, or get a video on DVD in the mail from Netflix or Blockbuster, or buy a movie at all sorts of vendors from grocery stores to electronics stores to pharmacies to book stores, or many movies can be downloaded on a purchase basis from an online vendor like Amazon, or download movies on rental basis from Netflix, Blockbuster, or a number of other vendors, or you can take on out physically from your local library collection for free, or you can download a copy from your local library for select films. Ordinary non-premium TV still airs movies that are no longer in theaters anymore in abridged form from time to time as well.

Increasingly, quality television shows air on HBO and Showtime or other premium channels, rather than on broadcast or basic cable television stations. Television series that were reasonably successful are often available on video in a year or so, usually with more airtime for the same price than comparable movies, free of commercials that were including in the original broadcasts, and with DVD extras. And, watching replays of movies on TiVo or other DVR machines also provides more control for TV watchers. Replays on television itself have proliferated for those who aren't concerned about seeing their favorite shows in order or in a timely manner. Some TV shows make episodes available to watch on the Internet, sometimes with extra features as well, for free for a limited time, from after the time the show has originally aired for weeks or months afterwords.

The cost of watching the premium television that would push you to buy premium cable services online or renting it is increasingly competitive with the cost of buying that premium cable service. Unless you watch a lot of shows and you are such a fan that you need to watch them the moment that they come out, you can watch everything you want on video, with fewer interruptions, for less money.

I find that it is often enjoyable to watch a full season of a quality TV program on video over a few days to a few weeks, when I would never have bothered to find time in my life to watch original episodes, in order, at set times each week, over a period of many months. Freedom for the tyranny of network programming schedules and the time during those shows devoted to lengthy commercials, is worth it. And, seeing episodes close in time to each other, in order, makes it easier to enjoy a series that has a meaningful plot.

The Chaos Of Contemporary Video Entertainment Pricing

The pricing of all of these options hasn't reached an equilibrium yet.

In person movie watching has seen declining attendance, but increasing revenues, ever since 2005, as first run movie prices have soared (and the concessions have followed suit), and premium options like IMAX and 3D theater options are taking up an increasing share of the in person movie options. It can now easily cost $50 for two people to see a first run, mainstream movie in person, in a premium format, at night, with popcorn and a drink, and no special deals. Certainly, this is no longer in the price range of a middle school date, as it was when I was a kid.

In addition to cutting into attendance with higher prices, the premium movie options available in movie theaters only aren't adding much value. The 3D technology used in the movie Avatar and a lot of other recent releases is better than it used to be and has potential, but no director has yet managed to use it in a way that truly brings the performance to a whole new level; generally, it is still just a gratuitous add on. A big IMAX screen is cool, but not that amazing in movies that aren't made exclusively for IMAX, something that destroys the value of the film in other forums.

The cost of old fashioned DVD movie rentals, at a store or kiosk, has fallen a great deal, to as little as $1 a night, and the cost of buying a movie has likewise fallen, with titles often soon available for $10 and discounts abundant. Buying a movie on video often costs less than buying a single first run ticket to see it, and can be watched by several people at once on a family movie night, or party.

Downloadable movies from Netflix and Blockbuster, and low cost ubiquitous movie kiosks, are also starting to make comparable services from cable TV and satellite TV providers look grossly over priced. Why buy for TV channels that play movies on their schedules, or expensive on demand movie services, when you can get access to online downloads of movies from a large library for $9 a month, no matter how many movies you watch?

Movie theaters allow audiences to see new movies sooner, although the gap between theater appearances and home media is narrowing, and allow for a somewhat enhanced viewing experience, but the cost gap has grown so great that it is increasingly hard to justify it, especially for movies that aren't so extraordinary visually that they really require a big screen and a professional sound system to be fully appreciated.

Cable TV and satellite TV have a little less of a time lag for their movie offerings than some of the other options, but can't offer the premium experience that movie theaters do, and cost a lot more than renting movies just a few weeks later.

It also seems like only a matter of time before movie theaters will be force to share their time of access premium with premium services that make that content available at home almost as soon as it is available in theaters for an extra price.

When that happens, they will be even more pressed to limit their profit margins to the value that they actually add with a big screen, quality sound, comfortable, out of the house event, with quality food environment, rather than charging a premium for the content itself.

To some extent, this is inherent in the nature of the medium itself. When the marginal cost of making a product available to a marginal customer is close to zero, the incentive to expand the market to new customers at a low price is going to be great, and one has to find some other way to engage in price discrimination that will lure those willing to pay more for the same thing into doing so.

The Stagnant State of Blu-Ray

Blu-Ray continues to price itself out of the market it needs to take if it wants to become the industry standard, considering that it provides only incremental improvements in picture quality and sound over already quite satisfactory DVDs. They are much more expensive to buy, more expensive to rent, require players that cost about a hundred dollars more than the going price for a DVD player, and even cost considerably more to get via Netflix and Blockbuster subscription arrangements, yet they offer a much narrower selection of titles.

Blu-Ray won the war to become the next generation DVD format, but the people managing this concept appear to be incapable of turning their monopoly on improved quality home video to the next level. By the time Blu-Ray has become the industry standard supplanting DVDs, a few years from now, video downloading over wider bandwidth Internet connections using improved data compression technologies may have rendered it irrelevant. Blu-Ray could be the last fixed medium of its kind for holding single movies to rent or own. It made go down in history with the 8 track tape and digital video disk as high end media that never truly managed to become industry standards before going out of style if prices don't come down dramatically, and soon.

Of course, part of the problem may be that much of the video entertainment industry isn't really interesting in seeing Blu-Ray succeed.

Cable and satellite TV companies can offer premium HD sports programming packages without Blu-Ray, and indeed, all of their non-sports HD programming is worth less if you can get the same thing on Blu-Ray at a modest cost. Movie theaters also have no strong interest in promoting it: The better the picture and sound quality one can obtain at home is, the less worthwhile it is for people to go to a theater to watch a movie instead. Movie studios and producers, naturally enough, care what movie theaters think about a new technology.

Consumer electronics companies know that their per unit margin will have to fall a lot if they lower the prices of Blu-Ray players enough to make it an industry standard product, and that there may not be a next new thing to replace it with a new line of premium prices home electronics.

The Dismal Future Of Television

Increasingly, the edge cable TV and satellite TV have is in their day to day, time sensitive programming, like sports events, TV news, and in the endless output of specialty networks like the Food network and Discovery channel with content not worthy of releasing to video, rather than as a medium to provide access to movies and quality drama and comedy series. More and more of that content is also available live streamed over the Internet as well.

Broadcast television "destination programming," meanwhile, has grown even more dismal and lost more and more market share, as more and more channels, most available only with cable or satellite TV subscriptions, compete for about the same quantity of quality television, and advertising revenues reduce the funds available to buy quality programming. The writers strike, in 2007, also dealt a long term blow to destination programming on television by creating a large niche for "reality TV" and other dreck that doesn't use the services of writers.

Broadcast television has also suffered from the switch from analog to digital TV. This kicked television out of the lives of people not bothered enough to upgrade to digital TV entirely. And, digital TV reception is good enough to get a signal on fewer channels and in fewer places than analog TV, so often, again, the switch to digital TV has meant that people are either dropping television entirely, or are switching to cable or satellite TV.

Cable TV also has immense redundancy in its offerings, some of which is due to the requirement that it carry local broadcast programming, and some of which has no obvious explanation. While it has hundreds of channels at its disposal, and even basic cable offers dozens of channels, often precisely the same programming is being offered on several channels, several broadcast TV channels offer nothing but static and an out of service signals, and many more channels are stuffed with infomercials.

It would be worth a small premium, perhaps a couple of dollars a month, simply to strip out the redundancy and paid programming. Indeed, the large number of consumer complaints that cable TV and satellite TV companies generate probably has something to do with the slapdash mishmash of the product that they produce, as much as it does with their actual specific failings to promised provide customer services that give rise to specific complaints.

I am a big telecommunications consumer. I pay for landline telephone and reception services and internet access at the office, for cell phone service, and for a bundle with landline television service, basic cable TV and broadband internet access at home. I also rent videos now and then.

But, increasingly, I'm finding that video rentals and library borrowings make premium cable TV superfluous, and cable TV is a pretty small share of my total telecommunications expense. As these services provide less value and face competition, the funds available to them shrink.

The Demise Of Local TV Content

Local Content Is Missing In Action

It is probably only a matter of time before many communities lose many of their local broadcast television stations, which would be more of a shame if the market share of broadcast TV wasn't already so diminished and the share of original programming on local TV stations wasn't already so modest.

Aside from the TV news, itself of dubious quality, neither commercial broadcast television, nor public television, offer much local programming at all, unless you happen to live in New York or Los Angeles and consider their productions for national consumption to be local programming.

Local programming, where it exists in the mass media format, seems to have largely migrated towards less expensive to make radio programming and video distribution via podcast.

What local programming is provided on commercial broadcast television, mostly TV news, also suffers from immense redundancy and gobs of filler material. Local stations appear to be struggling to find enough to say to fill their time slots, rather than struggling to find ways to fit all that they have to say into a very limited amount of time each day. They seem to have a little less than a half an hour of something worthwhile to say each day and try to stretch that out into two or three hours of programming each day, fulling the rest with repetition, empty chatter and garbage.

Public television rarely runs meaningfully more local programming than commercial stations do, despite the fact that where there is local programming on public television and public radio, they have often been wildly successful (e.g., Philadelphia's "Fresh Air" program, and the "Sesame Street" and "This Old House" programs produced in Boston), even if very low cost production values.

Should Local TV Stations Be The Producers Of Local News?

It might make more economic sense to off local news primarily via podcast as a value added service of newspapers, rather than trying to shoe horn them into local network television stations that are otherwise in the business of selling advertising to support bulk purchases and rebroadcast of television network programming.

Newspapers already have semi-formal alliances with TV news crews and are much better at tracking down news and reporting it in large quantities in a quality fashion.

Why not simply reorganize news programs so that they are the property of the newspapers, rather than the property of local network television stations that aren't interested in producing a quality product at the cost it takes to do that?

If local news content were migrated to underutilized public access stations, this might make it easier for the rest of the content on broadcast network television to go to a more efficient completely national model.

Public Access Television Is Underutilized For No Obvious Reason

Public access channels invariably run almost nothing but glorified slide shows of public announcements, and deathly boring footage of public meetings that makes C-SPAN look polished and glitzy. Vast amounts of exceedingly valuable video time that reaches every member of the public with cable TV is routinely wasted because communities, for whatever reason, have not been willing to devote the resources to produce even amateur quality programming to air on these stations.

It isn't for lack of what could be a substantial reservoir of public access programming material.

Sports events at recreation centers, high schools and colleges not big time enough to rate TV contracts could be covered by rec center or school employees (perhaps as part of media classes). Some already are covered by parents, coaches, and on closed circuit TV.

Regional and community theaters, opera companies, symphonies and the like could be covered, and many make professional quality recordings of their performances and do amateur videotapings of them anyway. There are countless local rock bands that would love to give performances for free or at little cost, so that they could reach a larger audience. There are plenty of coffee shops that would be proud to offer video of their poetry readings for no cost other than the publicity it would generate. Lots of nightclubs would be happy to offer for free a half hour highlights track of people dancing at their club that would be as entertaining as many reality shows.

Every college has a never ending stream of lectures from guest speakers that could fill public access channel airtime, and most could easily organize interesting lecture series with in house talent at little cost if the option were available.

Interview programs, like the Colorado Matters program produced by CPR are cheap to produce, and many radio interviews already done by existing media outlets could be broadcast on television at little additional cost.

The view from the judge's box at major parades makes good television. Many festivals in Denver's Civic Center (and in similar venues elsewhere) would assent to filming of performances held there for public access television.

The police could offer three minute "most wanted" or "tips wanted" pieces that would be repeated like a commercial several times each day with the costs fairly attributed to investigation budgets much like rewards and press conferences are now. It wouldn't be that expensive to take video of state legislative and local government proceedings that are already podcast or offered on a public access channel and have students at local high schools or colleges edit them down to a daily highlights reel that wouldn't be so mind numbingly dull.

It is also a lot cheaper to produce tolerable quality video now, than it was when cable companies first starting making public access television stations available. One can get video quality that used to take a $100,000 camera with digital cameras that cost a few thousand dollars. One can edit digital video on computers with far less technical training and no really expensive material, for a fraction of the cost in equipment, time and training of the tape splicing that used to have to be done does. Getting video from the place it is taken to a production studio is much easier than it used to be.

The rise of the podcast that YouTube has made it possible to distribute widely shows just how much the quality of amateur video has improved from the days of Super8 home video.

One can get half interesting productions by sequencing still photo shots, putting them in a slide show, and putting them to music with narration in writing or voice over, on a shoe string. This is essentially how many of the early anime features were done in Japan before CGI and American style production values began to exert their influence.

If all else failed, there are lots of web cams available for free on the Internet, some maintained by state and local government officials, that could be run in the background, and there are reading services for the blind that could provide audio to complement the random webcam video from across the state.

The Future of Video Entertainment

The current muddle doesn't seem sustainable. The increasing number of TV networks, the reduced importance of the time that a show is offered on television or at a movie theater, and the diminishing value that seems to be added by television networks and local broadcast television stations to programming produced by someone else, seem to suggest a different approach.

I imagine a future of video entertainment where most quality programming is viewed "on demand" via a download, in exchange for a flat subscription fee, where TV commercial style advertising becomes much less important relative to advertising integrated into video offerings or is offered before programming is viewed, and where the process of brokering programming between individual subscribers and content producers is handled by interactive intermediaries, rather than television networks. The networks that survive will look more like movie studios, with a focus on producing a coherent stream of content (with the Disney channel as a paradigm) rather than like traditional contemporary TV networks that simply buy content, match it to advertising, and resell it.

If the Netflix content downloading model ends up become the dominant business model in the video entertainment business, and perhaps the dominant business model in the audio entertainment business as well, this may take the wind out of the sails of the efforts by studios to clamp down on unlicensed downloading. If a subscription model makes almost all content available at no marginal cost for additional media, and it is priced low enough that most people who really care about movies enough to figure out some alternate illegal distribution system end up subscribing, there will no longer be much of an economic incentive to try to distribute bootleg copies of the media and the issue will disappear.

It also will become harder and harder for the public to tolerate draconian punishments for copyright violations as the cost of buying that material legitimately shrinks to pocket change. Fining someone tens of thousands of dollars plus attorneys' fees for illegally downloading a single song that could be bought at iTunes for a dollar, or listened to for free on streaming audio services just doesn't make sense. The more electronic entertainment is made available for free by their distributors, the harder it is for them to make the case that they are losing something when someone else distributes it without their authorization.

It is also increasingly hard for studios to make their case that copyright exists to protect to person who creates when those people increasingly don't own any copyrights in their own works, having assigned them to studios or production companies in exchange for a salary, a flat fee, or a royalty arrangement in the case of key talents.

The Netflix business model looks a lot like the way that radio stations and press services have run for years on a business to business basis. A radio station or newspaper pays a flat annual fee based upon its listen or reader base for unlimited access to the offerings of songs or news respectively, and keeps track of what gets the most use for royalty distribution purposes later on. Once they are in the system they can use as much as they want without securing licensing from the portfolio of content covered by the license.

Increasingly, it looks like we are headed towards a model where individuals likewise pay a flat fee to have unlimited access to a large portfolio of content for a fixed period of time without charging a separate fee for each individual transaction. For users who pay the subscription fee, a vast library of material locked up by copyrights is converted into a massive public domain resource. This is a bit like the notion of paying a fixed monthly fee to use all of the offerings available on cable or satellite TV or satellite radio, but is a more pure version of it.

The new concept looks less like a transaction based sale of a commodity model, and more like a gym membership, or home owner's association dues, or country club dues system. You join the club and then you have access to the club's offerings.

Given the tendency of those kinds of business models to most commonly be organized on a non-profit basis, one wonders if the same thing won't happen in the entertainment industry. Perhaps the function of distributing media will move towards a utility or non-profit model, with only the function of creating media continuing to operate on a for profit model under rules for allocating subscription funds organized by a utility or non-profit distributor.